London's Economy the Danger Signs

London's Economy the Danger Signs

Article excerpt

CAN LONDON RIDE out the slowdown in the world economy unscathed? House prices are still rising, as we report today. Consumers are still spending.

The dominant mood of the capital's business community, as measured by our monthly Business Monitor, remains optimistic. Yet, as we also show, disturbing signs are beginning to multiply. The effects of the downturn are rippling beyond the old industries and services, beyond the ends of London's commuter lines, and have started to affect the businesses which have prospered so mightily in the capital in recent years, such as finance, tourism and advertising. This is partly because modern economies are so interconnected that no sector can remain permanently insulated from others.

But the danger signs also indicate that we cannot expect to remain immune from the effects of sterling's overvalued exchange rate. It would be a mistake to imagine that the downturn in business at London's hotels and theatres is caused chiefly by tourists staying away because of foot-and-mouth. Many Americans find continental Europe far better value as a holiday destination these days while Europeans themselves are increasingly horrified by the cost of crossing the Channel to come here. If London's economy does weaken, and the whole of Britain drifts towards recession, then not only will many jobs and businesses be at risk but also Tony Blair's whole strategy for his second term. His ambition is to spend enough extra money on our inadequate and historically underfunded public services to produce noticeable improvements by the next General Election. Those plans depend, in turn, on tax revenues continuing to rise. If the economy falters, tax revenues will undershoot. The Government's arithmetic will quickly unravel.

With each day, prime ministerial assurances that the years of "boom and bust" are over for ever sound shakier. The odds are that the next year or two will be flat, at best. It is not just London's economy that stands on the brink, but Labour's hopes of making a lasting impact on Britain.

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